Vilsack Talks Flexibility, But Lawmakers Focus on Crop Insurance and Budget Cut Proposals

February 15, 2012 09:30 PM
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Lawmakers focus on support for crop insurance, and query Vilsack on proposed budget cuts

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.

The latest farm bill hearing – the first for 2012 – focused largely on renewable-energy programs and economic development in rural America, but panel members raised other topics – notably support for crop insurance and questions regarding the Obama administration's proposed cuts for crop insurance and other farm programs – above and beyond what most farm-state lawmakers prefer.

It's long been said that the writing and passage of an omnibus farm bill is just the first steps in the process, because how USDA implements provisions of the legislation is sometimes just as, if not more, important. The implementation topic was one of the focus issues at Wednesday's Senate Ag Committee hearing on the farm bill – at least from the viewpoint of USDA Secretary Tom Vilsack, who urged the farm-state senators to provide his department flexibility to set priorities and to move money in areas of need.

What Vilsack wants. “As you consider the farm bill, I hope that you’ll recognize the importance of streamlining a number of programs, providing us flexibility to be able to use these programs creatively and adjust them to regional differences,” Vilsack told the panel.

Vilsack pledged what other Ag secretaries have done in the past – that USDA would provide technical assistance and advice as lawmakers work on a new omnibus farm bill.

Vilsack recommended broadening the terms of an existing business and industry guaranteed loan program to allow qualified facilities manufacturing innovative bio-based products made from energy feedstocks eligible for funding. Current restrictions, he said, “limits the capacity to use that program that has billions of dollars of opportunity over the course of farm bill funding.”

Vilsack said Congress should also back the Rural Energy for America Program, which has provided a mix of loans and grants for farmers, ranchers and small businesses to make operations more energy efficient or to build renewable-energy systems. He said more than 22,000 projects have received funding. Vilsack said the US has the potential to produce more than a billion dry tons of biomass each year for the energy industry by mid-century, without impacting other farm and forestry products. He said that would be enough to displace approximately 30 percent of the country’s present petroleum consumption.

Regarding budget-cuts facing USDA, Vilsack said the Ag Department is adjusting to a reduction of almost $3 billion in operating budget since Fiscal Year 2010, with more cuts ahead. His workforce has been thinned by early buyouts while impending retirements will reduce the department’s ranks even more over the next few years. “We are really tasking our people with trying to figure how to do better work, more work, with fewer dollars and fewer people,” he said.

Senate panel leaders focus on Obama's proposed farm program spending cuts. Committee Chairwoman Debbie Stabenow (D-Mich.) and ranking Republican Pat Roberts of Kansas said the Obama administration’s deficit reduction plan calling for $32 billion in cuts to mandatory spending for agriculture would make the task of writing a new farm bill more difficult. The proposed cuts are $9 billion more than the target that the Senate and the House Agriculture committees jointly proposed last October to a bipartisan Super Committee that failed to come up with $1.2 trillion in budget cuts over ten years. Stabenow said the $23 billion in net mandatory spending cuts they recommended represented what “we considered our fair share” in reducing the deficit.

Vilsack, in response to other questions on the administration's proposal to cut more from crop insurance spending, said, “We obviously recognize the importance of it, significance of it. I think the question is, you know, how much of a profit margin do you need in order to be sustainable? I think that's obviously something we can talk about."

“In the president's view, these insurance companies are in a better position to withstand these difficult times ... than people who are struggling to put food on the table for their families,” Vilsack said. More than 46 million people received food stamp benefits in November 2011, a 50 percent increase from three years ago, according to the latest USDA data.

Lawmakers support no changes for crop insurance spending. During last year's draft farm bill process, the agriculture leaders wrote a draft farm bill that would make crop insurance the keystone of the financial safety net for farmers. Stabenow said she was concerned that the administration’s plan includes $7.6 billion in 10-year cuts in subsidies to the private insurance companies that sell crop insurance policies, along with a reduction in the federal government’s share of premium costs for farmers who pay less than 50 percent of costs for additional crop insurance coverage.

Roberts noted the Obama administration could have found areas in nutrition assistance programs to trim for efficiencies without causing hardship on recipients.

“All the producers are telling us crop insurance is the number one priority—number one. That's what all of us are hearing,” said Sen. John Hoeven (R-N.D.).

Vilsack also addressed direct payments to farmers — which he said would probably go away in farm bill deliberations “with good reason” — and the president's support of continued disaster assistance funding.

Johanns targets SURE. Sen. Mike Johanns (R-Neb.), who served as agriculture secretary under President George W. Bush, suggested that instead of taking money from crop insurance, they should get rid of the Supplemental Revenue Assistance Payments (SURE) program, a permanent disaster assistance program established in the 2008 farm bill. “I've yet to have a producer come to me and say, ‘Boy, I love that SURE program Mike.' Quite the opposite. It just doesn't work very well. I don't think it's done the job. I'm not a fan of it,” Johanns said. Vilsack agreed that the current program would have to be retooled in the next farm bill. “You need some kind of mechanism to provide assistance and help when that producer needs it. The problem with SURE is that it's a dollar short and a day late,” Vilsack said. “You are going to have to change the program so that it is more relevant than it is today.”

The next farm bill hearing Feb. 28 will focus on conservation programs.

Proposed Ag-Related Cuts in President Obama's Fiscal Year 2013 Budget Proposal

Following are proposals on eliminating direct payments, cutting subsidies to crop insurance companies and capping the Conservation Reserve Program at 30 million acres:

Direct payments

Proposal: The Administration proposes to eliminate direct payments, while strengthening the safety net for those who need it most by providing disaster assistance for farmers suffering losses for the 2013 to 2017 crop years. Counter-cyclical assistance payments are also expected to increase, partially offsetting the reduction in payments to farmers.

Justification: For the past decade, the agricultural sector has been extremely strong. Farm income has been high and continues to increase, with net farm income forecast to be $100.9 billion for 2011, up $21.8 billion from 2010 - the second highest inflation-adjusted value for net farm income recorded in more than 35 years. The top five earnings years for the past three decades have occurred since 2004, attesting to the profitability of farming over the past decade. The Administration proposes to eliminate the direct payment program, which provides producers fixed annual income support payments for having historically planted crops that were supported by Government programs, regardless of whether the farmer is currently producing those crops – or producing any crop.

Direct payments do not vary with prices, yields, or producers' farm incomes. As a result, taxpayers continue to foot the bill for these payments to farmers even when farmers are earning record incomes. The Administration remains committed to a strong safety net for farmers, one that protects them from revenue losses that result from low yields or price declines. Providing income support payments to farmers that are experiencing near record incomes is not prudent. In fact, more than 50 percent of direct payments go to farmers with more than $100,000 in income. Economists have shown that direct payments have priced young Americans out of renting or owning the land needed to enter into farming. In a period of severe fiscal restraint, these payments are no longer defensible.

Crop Insurance

Proposal: The Budget proposes to streamline crop insurance subsidies by: establishing a reasonable rate of return to participating crop insurance companies; reducing the reimbursement rate to insurance companies of administrative and operating expenses; reducing the premium rate on catastrophic coverage to better reflect historical performance; and decreasing the premium subsidy paid by producers by two percentage points.

Justification: Crop insurance is a foundation of the Nation's farm safety net. Yet, the program continues to be highly subsidized and costs the Government approximately $10 billion a year to run: $3 billion per year for the private insurance companies to administer and underwrite the program and $7 billion per year in premium subsidies to the farmers. A Department of Agriculture commissioned study found that when compared to other private companies, crop insurance companies' rate of return on investment (ROI) should be around 12 percent, but is currently expected to be 14 percent. The Administration is proposing to lower the crop insurance companies' ROI to meet the 12 percent target, saving $1.2 billion over 10 years. In addition, the current cap on administrative expenses is based on the 2010 premiums, which were among the highest ever.

A more appropriate level for the cap would be based on 2006 premiums, neutralizing the spike in commodity prices over the last four years, but not harming the delivery system. The Administration, therefore, proposes setting the cap at $0.9 billion adjusted annually for inflation, which would save $2.9 billion over 10 years.

For premium subsidy changes, the Administration proposes to reduce the premium for catastrophic (CAT) coverage policies, which will slightly lower the reimbursement to crop insurance companies. The premium for CAT coverage is fully subsidized for the farmer, so the farmer is not impacted by the change. This change will save $255 million over 10 years. In addition, the Administration is proposing to reduce producers' premium subsidy by two basis points for all but catastrophic crop insurance, where the subsidy is greater than 50 percent. This will have little impact on producers. Most producers pay only 40 percent of the cost of their crop insurance premium on average, with the Government paying for the remainder. This cost-share arrangement was implemented in 2000, when very few producers participated in the program and "ad-hoc" agricultural disaster assistance bills were passed regularly. The Congress increased the premium subsidy for buy-up coverage by over 50 percent at the time to encourage greater participation. With current participation rates, the deep premium subsidies are no longer needed. This proposal is expected to save $3.3 billion over 10 years.


Proposal: The Administration proposes to cap enrollment in the Conservation Reserve Program (CRP) to achieve cumulative savings of roughly $977 million over 10 years.

Justification: CRP will be capped at 30 million acres by 2013 (saving an estimated $977 million in outlays over 10 years) by gradually reducing the acreage enrolled in the program through attrition. High commodity prices have lowered demand for enrollment in CRP as more farmers look to increase planted acres.

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.






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